The pound headed for its largest single-day gain in three weeks on Wednesday, following an agreement between the United States and Iran for a two-week ceasefire.
This development ignited a wave of optimism across global markets, leading to a significant drop in oil prices.
Sterling climbed 1 per cent on the day to $1.342, marking its highest level since 23 March and placing it just 0.4 per cent below its value prior to the conflict’s onset in late February.
Brent crude futures plummeted by as much as 16 per cent in early trading, as investors welcomed the prospect of a sustained truce that could allow the resumption of marine traffic through the Strait of Hormuz, which Iran has effectively blocked since the war began.
The ceasefire was announced late on Tuesday night in the US after Donald Trump had previously declared “a whole civilization will die tonight, never to be brought back,” if a truce was not agreed.
The shift in market sentiment also saw money markets scale back their expectations for interest rate hikes by major central banks this year.
Previously, traders had priced in at least two rate increases from the Bank of England this year; this has now been revised to just one hike in 2026, with only an outside chance of a second.
Against the euro, the pound was marginally stronger, with the single European currency trading down 0.2 per cent at 87.12 pence.
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ING strategist Chris Turner noted this was somewhat surprising, given that expectations for the European Central Bank have not been cut as aggressively as for the BoE, which theoretically should have provided a lift to the euro.
“One might have thought EUR/GBP could be trading a little higher were Bank of England policy tightening to be priced out more quickly than that of the ECB. Still, EUR/GBP continues to trade over 0.8700 and should find good support on dips,” he said.
